How the Vail Valley’s been hit by the crisis in confidence
Vail, CO, Colorado
Economic activity and travel news rebounded in early September as fuel prices relaxed, but deteriorated drastically in mid-September when financial markets failed in the U.S. then spread globally, unprecedented in the experience of most consumers and numbing in consequence.
– The stock market is the most recognized barometer of how the economy is performing and consumers are often swayed by dramatic swings in stock value and in turn, the status of their investments. Drastic swings in the market and a net drop of about 40 percent since last year, are a blow to consumers and their sense of well being.
– The inability of our government to establish a credible recovery plan has been complicated by the upcoming elections and has contributed to further consumer uncertainty and anxiety.
– The result has been a widespread crisis of confidence that is halting non-essential spending for many consumers, including many considering a vacation. Because more than 70 percent of our economy is driven by consumer spending, this has become a self-fulfilling prophesy, as spending slows and the markets weaken even further.
On the up side, some indicators pointed in a positive direction:
– Oil, after settling around $110 per barrel during early September, has dropped dramatically recently as investors seek safer havens, and are now fluctuating around $70 per barrel. Gasoline prices nationally are responding but at a slower pace, but have dropped below $3 per gallon in many places. This bodes well for leisure travel and contributes to an uptick in consumer confidence.
– The Consumer Confidence Index lags the events of late September and shows that consumers felt “less bad” than past months. The beleaguered Consumer Confidence Index increased moderately to a score of 59.8 in September.
On the downside, the long-anticipated bailout has failed to provide relief, has shifted dramatically to a bank stock purchase plan, and after failing to ignite any positive momentum, is being portrayed as a long-term fix that will “take some time.”
– The financial market meltdown continued to spread both domestically and internationally, reaching further into commercial loans and short term credit upon which businesses historically rely for daily operations and short term cash flow management. The resulting inability to access liquid assets for daily business negatively impacts spending for discretionary products and service such as vacations. Credit-related failures among travel-related businesses are inevitable but not yet visible on a wide scale.
– Inflation, which dropped to 5.37 percent last month and appeared to be stabilizing, now re-emerges as a factor. The Federal Reserve’s most recent drop in interest rates should help the credit market but negatively impact the value of the dollar, and the longer term negative impact on both inflation and the dollar, will likely not be apparent for some time.
– The spread of U.S. economic woes around the world has many consequences, key of which are more resentment of America and Americans and pressure on international travel to the U.S., which was a bright spot in last year’s ski season but not likely to be reproduced.
What does this mean for the mountain resort industry?
– Responsible consumers, including historically faithful skiers and prospective guests, should not be expected to book vacations as usual under these extreme conditions. It is unlikely that the marketplace will return to any normal patterns until the financial markets stabilize, political leadership is established, and consumer confidence returns. For the mountain resort industry, the timing and quantity of snow will play a significant role and good snow has proven itself even more important than a good economy for core skiers as was evidenced last year
– When things return to normal, it may well be a “new” normal since consumers will have fewer assets, their dollar will buy less, living will cost more, and credit will be drastically different than in years past, effectively ending Americans’ history of financing their lifestyles.
– Mountain destinations and their tourism dependent businesses must be ready. Resort need to have the right products and packages in place to stimulate demand in key market segments.
– Competition for discretionary dollars is expected to increase, both among resorts and retailers who are already decorating for the Christmas holidays; pressure on price is inevitable.
– If history is any indicator, skiers will rally, the core of the ski market will remain substantially intact and others will come who “need a vacation”, offsetting the less committed skiers and snowboarders. Skiers and riders are likely to stay closer to home, benefiting nearby resorts at the expense of more remote destinations. The conventional wisdom is that returning visitors will spend less and commerce in resort communities will see softness as a result.
What can you do? Remember markets are cyclical and this too will pass, hunker down for the short term, get consumer-centric, be ready when the situation improves and pray for snow. And, to the extent possible, stay clear about the long term objectives upon which your ultimate success is dependent. Use those goals as a compass to find your way until the “new normal” becomes more clear.
Ralf Garrison is the director of MTRiP, the Mountain Travel Research Program. For further information contact MTRIP at email@example.com or by phone at 303-722-7346.
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